Buying vs. Leasing a Car

Tip: No Down. Many leases require a down payment, but you may be able to talk the lender into lowering the payment or omitting it entirely.

Some people approach buying a car like they approach marriage, “till death do us part.” Others prefer to keep their options open, trading in every few years for the latest body style, the hottest technology, or the highest horsepower. Whichever describes you best, we all face a similar decision when it comes to acquiring a car: finance, lease, or pay cash.

About one-third of people lease their cars, but most choose to finance, and some still pay cash.¹ From an investment perspective, which choice is best? That depends on your lifestyle, cash flow, and personal preferences.

For many, paying cash for a car is the simplest way to get one. When you drive off the lot, you own the vehicle outright and are free to do whatever you want with it. You face no penalties or mileage restrictions, and you have no monthly payments. However, you have paid cash for a vehicle that is expected to depreciate over time.

Financing a car requires a smaller initial outlay of money, usually 10% to 15% of the vehicle’s value, in the form of a down payment.² When you drive off the lot, the bank owns the car, not you. As with most loans, you make monthly payments of principal and interest with the promise of eventual ownership. The amount of your payment depends on a variety of factors, including the value of the car, the length of the loan, and the interest rate offered by the lender. Car dealers sometimes will offer “no money down” or low annual percentage rate loans, which can make financing more manageable.

Fast Fact: Watch the Miles. Mileage overages can cost 10 to 30 cents per mile, but you may be able to purchase extra miles up front at a discounted rate. Source: U.S. News and World Report, August 26, 2016

If you like to have a new car every few years, leasing is an approach to consider. Leasing a car is like renting an apartment. You pay a monthly fee to use the car for a specific amount of time, usually two to three years. Monthly payments are typically lower than when you finance since you are paying for the depreciation on the car while you drive it. In certain situations, lease payments also may have tax considerations.³ However, there are caveats to leasing. For one, a lease typically stipulates the number of miles you are permitted to drive during the course of the lease. At the end of your lease, you may face penalties if you have exceeded the total number of miles in the contract.⁴

Whatever your relationship with your car, it may eventually come time for a new one. Familiarize yourself with your options. You may find that changing your strategy makes sense in light of your lifestyle or financial situation.

Experian.com, 2016

Cars.com, September 2, 2016

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Cars.com, September 2, 2016

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

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Stephen Eldridge has more than 44 years of direct industry experience, having founded Stephen Eldridge & Company, a retirement plan administration firm, in 1972. Early in his career, following the passage of the Employee Retirement...

Craig Garner, a 26-year veteran of the firm, provides education and assistance in a number of areas, including plan document review, ERISA guidance and ongoing compliance education. Craig also conducts operational plan reviews that...

With over 20 years of experience working in asset management and employer sponsored retirement plans, Sean Riley brings an insider’s perspective to his role as a consultant and advisor for our clients. Sean joined the firm in...

Kevin Whitmore brings almost three decades of securities industry experience to his role as a financial advisor. After earning a B.A. in business and economics from St. Anselm College, Kevin began his career in the securities business...

Robert Batdorf is a senior client portfolio manager and 24-year veteran of Eldridge Investment Advisors, Inc. He brings more than 4 decades of industry leadership and experience across multiple market and economic cycles to the...

Warren joined the firm in 1989 as a Portfolio Manager and financial advisor, concentrating in mid-to-large company retirement plans and 529 education savings plans. Beginning in 2016, he will focus solely on client portfolio management...

Susan Lipsett is a research assistant and administrative assistant supporting the firms’ client portfolio managers as well as financial advisors Sean Riley and Kevin Whitmore. She collects and distributes...

Leslie Maffee oversees the daily operations of the branch office and is a LPL Registered Sales Assistant to Stephen Eldridge and Eric Putney. She has more than 30 years of experience in branch office operations (over 20 years with...

Meg Dworkin provides support for the registered assistants in addition to being a member of the retirement plan team. She has 20+ years of experience in the areas of defined contribution, defined benefit and individual taxation. Meg...

With over 16 years of experience in the investment industry, Stephen Murray provides research analysis and portfolio management. Prior to joining the firm in 2016, he was Director of Research and Portfolio Manager with Harvest Capital...

Justin Eldridge joined the firm in 2016 to assist in the areas of Sales and Research. He graduated from Trinity College with a double major in Economics and Political Science, and earned his MBA in Finance from Northeastern University....

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The content is developed from sources believed to be providing accurate information.
The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals
for specific information regarding your individual situation. Some of this material was developed and produced by
FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named
representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and
material provided are for general information, and should not be considered a solicitation for the purchase or
sale of any security.

Copyright 2019 FMG Suite.

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